Monday, January 19, 2009

Beyond the salary raise

The modest salary raise for the civil service is a landmark decision by the government - for many reasons. First, it was a very difficult choice, especially for an elected government. Second, it has stood by its campaign slogan of “equity and justice” and third and the most important, the government has incorporated views from other sections of the society.

As a former civil servant, there is no arguing that the salary raise was necessary. I know how tough life can be at times. But it was the percentage that was discussed, and disputed, by every quarter. The raise in itself was never questioned. The global financial crisis, the funding gap of the Tenth Plan, the long-term sustainability of the raise and above all, the ramification into other sectors – everything had to be taken into account.

Bhutan meets much of its capital expenditures from donor funding. As ripples of the American economic melt-down hits our traditional development partners, it is clear that these countries would commit less into the ODA (overseas development assistance). Japan, for example, is not in a good shape and has been in recession for many years now. In any case, our development partners have already indicated in the last Round Table Meeting in Thimphu that they would be withdrawing - starting 2013. Hence, it’s time we save up to start meeting our capital expenses too. 2013 is not far away.

The long-term sustainability of the raise was perhaps the most important factor that made the government arrive at this decision. Despite our tremendous growth and prosperity, our economic base remains very weak. Grant aid cannot be used to meet recurrent expenditures like salaries. Our own Constitution is explicit on this issue. Of course we have hydropower and the ambitious accelerated-hydropower development is a wonderful plan that will address this national dilemma. But that will materialise only after 2020 plus at least a decade to service the debts.

The total financial implication, on the national exchequer, from the salary raise is estimated at Nu. 1.33 billion (USD 27 million) annually. I am sure this will be met through increased taxes and internal revenues. But how about closing this gap and the funding gap for the Tenth plan through domestic financing? Treasury bills and bonds could be introduced. After all we have been talking about shared responsibilities in the nation-building. Some treasury bonds can have maturity period of over 30 years. Given our very bright economic future, even foreign individuals might invest in our treasury bonds.

One aspect that I was really concerned with the Pay Commission’s recommended percentage was the implication on the fragile private sector and the labour market. It is obvious that our SMEs, which form the majority of this sector, would not be able to match the raise. Things would be tough for everyone contrary to the Report that indicated a minimum impact. And when the going gets tough, the tough will not get going but would rather rationalise its manpower. People will be laid off and this will further aggravate the growing unemployment problem in the country. True, better salary for the civil service will increase the disposable income and consumer spending. But that might not have any major impact on the overall growth of the private sector here. The spending will be more on imported vehicles and commodities and foreign destinations (pilgrimage to other countries).

The civil servants were expecting a fat increase and I expect mixed reactions. But what is bugging them anyway? One thing, for sure - the rising living standard. I find Bangkok is much cheaper than Thimphu – a situation of total irony. One major component of a salary goes into house rents. So why not introduce home mortgage schemes that will give civil servants the possibility to own homes. The house or flats they intend to build or buy can be taken as collateral. Having a roof gives a person the self-confidence to work and serve better. If this is absolutely not possible, I don’t see why though, let’s cut the interest rates on existing housing loans. Bringing down the interest rate is not impossible. One just has to consider the dividend the banks pay to their shareholders. Or the courageous move by the Pension Board that brought down some of the interest rates. The market price for timber, sand and stone is another area that needs some serious review. These are the only local material we have and ironically the hardest to get. These interventions should be paralleled with a strict implementation of the Tenancy Act so that there is no arbitrary increase of house rents by property owners.

Another major spending is in having to own private vehicles. My in-laws in Japan don’t own a car because the public transport is cheap, reliable and accessible. If there is such a thing in Bhutan, there won’t be this huge financial drain. Not even on the government that has to maintain a costly fleet of pool vehicles. With the fuel prices skyrocketing and, on the other hand, with electricity readily available in this country, it would also make sense to build some trams, rail tracks and ropeways. We can do some carbon trading here.

In conclusion, we all had a hard time with this pay rise debate. Speculations and rumours and unjustified price rise of essential commodities and house rents were some of the undesired results of the process. Lot of work and resources also went into producing the Pay Commission’s report. However, if we don’t tackle the rising living standards immediately, it won’t be long before we get into the debate – all over again.

(also published in Bhutan Times, 21 Jan issue, under the Opinion page)


  1. The work is not yet over as you rightly said.

    I am pleased that the Government is checking on the house rents and the commodity prices for increases so that the salary raise doesn't become irrelevant.

    Now that PCS has been identified to be a mistake, there is an imminent need to address other work and motivation issues in the civil service. This should be done sooner than later.


  2. This is an excellent piece of information. Unfortunately, I missed the Bhutan times issue and even this article of yours for such a long time. I am away from home.

    As far as the Pay Commission and debates were concerned. One thing that I noticed was, they were taking it way too hard and long to decide on anything in the first case. It often occured to me that, they were discussing a Pay raise policy for all times to come. But that was not the case, its a simple raise. If a commission or government takes almost a year to decide on a pay rise, which is bound to happen every 5-6 years. I think its a very expensive discussion!!!

    We should instead have a payment policy with appropiate payment and raise policy, to be reviewed every 5-6 years without having to have so much of discussion and waste of time and resources..
    my two cents!